Green Growth Brands (GGBXF) has decided
to aggressively go after the retail cannabis market in the U.S.,
and it is quickly surpassing some of its competitors that have been
in business for many year, in the number of outlets it has.
While an aggressive strategy has its risks, in my
view it's far more risky to embrace a more moderate growth strategy
that can easily leave companies unable to compete with competitors
scaling out quickly, and the associated benefits included with
economies of scale. This is especially true in the retail segment
of the cannabis market Green Growth Brands competes in.
With that in mind, investors will have to throw
out the latest earnings numbers, because in a short time it has
already added 18 more retail outlets, and has a lot more that will
open by the end of the year.
That said, there is one number that is important
to watch as it grows, as well as keeping an eye on its balance
In the reporting period ended December 31, 2019,
Green Growth generated $3,142,620 in revenue, producing gross
profit of $1.34 million. Adjusted EBITDA for the quarter was -$8.5
million. Net loss before taxes was -$12,828,815. At the end of the
year cash and cash equivalents was at $31.5 million.
Breaking down sales by segment, cannabis
accounted for $3 million of revenue, and its CBD sales was
As for the most important number to watch going
forward, it is the revenue the company generates per sq. ft. That
number was among the best of any retail business, coming in at
$15,177 on an annualized basis.
While it'll be close to impossible to gauge the
company on its overall earnings report for a few quarters because
of how fast its adding locations to the business, the one constant
that will remain in place is how much the company sells per sq. ft.
That will determine demand, but also how accurately management is
identifying high-traffic areas.
Growth trajectory of its retail
As mentioned, Green Growth is ramping up the
number of retail outlets it will sell from. In the last reporting
period the numbers were based upon six shops. By the time of its
earnings report it had already increased that total to 27, and by
the end of June the company said that number will stand at 100. By
the end of 2019 it expects the total to soar to approximately
One thing investors should keep in mind for your
models is there is a lag effect in the retail world, by which I
mean the stores all open at different times during the remainder of
the year. That means each quarter the number of stores opened with
be at a staggered pace. As it relates to its earnings performance,
it will result in uneven results through the remainder of the
We're unlikely to see the full potential until
the company releases its first earnings report some time in the
second quarter of 2020. By then the stores will have at least a
quarter of sales to measure, with many of them having been in
business for a couple of quarters.
In its last earnings report management said it
had performed a blind product test against some popular brands as a
benchmark, and found in side-by-side sales, it either matched sales
of the highly regarded brand, and in some cases sold three times as
much of its product against that unnamed brand.
The one caveat is the products were priced at
about twice what Green Growth products are, so there is a concern
of the company commoditizing its brand by competing on low
At this stage of its growth this isn't a concern
to me because one its own products are more well known, it can take
steps to boost prices or lower costs ones it scales sales out. You
have to generate revenue first, and then improve efficiencies
Big acquisition just
Green Growth announced on June 4 it has acquired
Florida-based Spring Oaks Greenhouses, Inc. for $55 Million.
Spring Oaks has a medical marijuana dispensary
license in Florida, and is authorized to operate as a Medical
Marijuana Treatment Center in the state. It received a license in
April 2019 to produce, process and dispense medical cannabis and
cannabis products in Florida.
Per the license, the company is allowed but not
obligated to open as many as 35 dispensaries in the state, and if
Florida Medical Marijuana program exceeds 300,000, it can open up
five more dispensaries for a total of 40.
Terms of the deal were $26,150,000 in cash;
$17,100,000 in issuance of common shares at $2.35 per share; and an
$11,400,000 convertible secured promissory note with a maturity
date 12 months after the closing date. These shares will be locked
up for a period of 16 months after closing.
This will increase its MSO presence and sales in
the U.S., while it works at increasing CBD sales across the
In my view, the cannabis companies that generate
a profit and survive are those that take risks on the scaling side
of the business. As long as they have access to capital, I'm not
concerned about earnings in the near term.
Green Growth has chosen to go that route, and I
think it's the right one to take. It's going to start showing some
extraordinary revenue results over the next year, and as it does,
the market will start to reward the company.
Again, I am looking for from its earnings report
in regard to its retail outlets is how much it sells per square
foot. The rapid pace of growth makes normal earnings, in the short
term, difficult to use as a metric because of the staggered opening
of numerous retail stores, which will be operational for different
periods of time in the quarters being reported.
That's why I'm looking more toward the second
quarter of 2020 for a much clearer look at how the company is doing
once the dust settles down from all its shop openings.
While that's going on, it's continuing to grow
its cannabis business, which will be the largest revenue stream for
With a visible path to growth, and a willingness
to take the risk to become a market leader, Green Growth has the
potential to become a big player in the U.S. market.
There is risk to investors, but those willing to
take a position in the company have an increasing chance of reward
than risk, in my opinion.
To read more on the nitty gritty of whatâs going
on in the rising cannabis industry, click here.